Mitsubishi Exits, What’s Illinois’ Next Move?

<p>A public-private task force seeks a new buyer or tenant for the automaker’s mammoth plant. But government may be reluctant to sweeten a deal with tax credits or other incentives, a Rescuing Illinois report finds.</p>

For nearly three decades, the sprawling Mitsubishi Motors North America plant in Normal was an enormous economic engine, providing jobs and other commercial opportunities to its hometown and downstate Illinois.

Now, as the Tokyo-based automaker cuts over 1,250 good-paying area jobs and prepares to permanently end vehicle production by December, that mammoth plant is turning into something else: One of the most complex and daunting economic redevelopment projects Illinois has ever faced, a Rescuing Illinois report reveals.

Exactly how effective government officials will be in attracting a new tenant or buyer is uncertain, especially since the longtime practice of granting companies state tax credits and other incentives— used for decades to attract big employers to Illinois—is under fire from Gov. Rauner and some lawmakers.

A task force of more than 30 big-hitters from Illinois’ public and private sectors is gearing up to find a new tenant. It includes: U.S. Senators Dick Durbin and Mark Kirk; the mayors of Bloomington and Normal; top economic development executives from the region; area educational and union leaders; representatives from Mitsubishi Motors; Illinois Department of Commerce and Economic Opportunity; and representatives of the governor’s office.

"A task force formed within a week of Mitsubishi’s announcement (on July 24th)," said Kyle Ham, a task force member and chief executive officer of the Bloomington-Normal Economic Development Council, who’s hoping another car company will take over the 2.1-million-square-foot Normal plant.

Search is on

The United Auto Workers (UAW) union, which represents many Mitsubishi workers, has taken the lead in contacting the big three U.S. automakers - General Motors Co., Ford Motor Co. and the domestic operations of Fiat Chrysler Automobiles N.V. - to gauge whether the factory would fit into their future plans.

Meanwhile, the Illinois Department of Commerce has been holding discussions with foreign automakers.

"We’ve had a handful of automakers that have come to the facility and are doing their due diligence," Ham said. He declined to reveal the identities of any of the automakers.

When it made the decision to close the facility, Mitsubishi management vowed to try to find a company to purchase the plant and that process is underway.

But even if there is immediate and genuine interest by another vehicle manufacturer, the Normal plant likely wouldn’t be up and running for an extended period, Ham noted.

Economic impact

At this point, however, there isn’t an immediate buyer or user for the plant waiting in the wings so closing the factory will have a definite ripple effect on downstate Illinois, experts say.

Mitsubishi contributes nearly $120 million annually to the area economy in taxes and salary and benefits, according to the company. Its shutdown will have an almost immediate bearing on nearby stores and other community-based businesses.

But the economic fallout will stretch beyond the Bloomington-Normal area, given that a significant number of employees at the factory reside in the Peoria area, nearly 40 miles away, as well as vendors scattered throughout the Midwest.

Mitsubishi is the sixth-largest employer in the Bloomington-Normal area, with more than 950 hourly production workers and 300 white-collar employees.

Assembly line workers at the plant make, on average, about $24 per hour, while maintenance employees earn $28.50. Before workers agreed to a wage concessions a few years ago, the hourly pay rates stood at $28.50 and $32.50, respectively.

Mitsubishi trails just behind Advocate BroMenn Medical Center with about 1,350 people on its payroll, according to the Bloomington-Normal Economic Development Council. Bloomington-based State Farm Insurance, is the area’s largest employer with nearly 15,000 employees.

The sprawling plant sits across from vast farmland and in view of a massive wind farm, just a short drive from the bustling Illinois State University campus. An expansive parking lot that runs much of the length of the factory has scores of empty spaces on a recent weekday afternoon.

Mitsubishi’s Normal facility is the only foreign-owned auto assembly plant in the United States with a unionized workforce, with hourly production employees represented by the UAW Local 2488.

"We’ve had a lot of challenges there," said Ralph Timan, the local’s president from 2003 to 2012, who remains employed, for the time being, as a production worker at the plant.

The union and Mitsubishi management have had a fairly amicable relationship, Timan adds.

"But there have been some moments where it hasn’t been so harmonious," he added, referring to periodic layoffs, contract concessions and a 2011 threat by Mitsubishi to close the plant.

The decision by Mitsubishi to shutter the Normal plant came with no chance for negotiating, according to Timan.

Constructed with a capacity to manufacture about 240,000 vehicles, the Normal plant rarely came anywhere near that mark during its 30-year run. There were a few times in the early 2000s when production hit the 200,000-vehicle mark, Timan said.

In recent years, vehicle production has slipped to about 40,000 by some estimates.

Dulling the EDGE

The planned closure has led to a public outcry over the millions of dollars in tax incentives and other funds doled out over the years to Mitsubishi.

Backed by major state and local incentives totaling nearly $250 million, production at the Normal plant got rolling in 1988 as a joint venture between Mitsubishi and Chrysler Corp.

In 2011, the state provided additional tax incentives to sway Mitsubishi to keep the plant open. As part of that package, Mitsubishi had to maintain the existing 1,200-person workforce and wasn’t required to create any jobs in order to qualify for the incentives.

The state used its EDGE tax credit program to keep Mitsubishi around.

EDGE, which stands for Economic Development For a Growing Economy, gives employers tax credits equal to the amount of state income taxes paid, provided the companies redeploy those funds to retain employees, hire workers or make significant capital improvements.

The state’s commerce department administers the program, which was enacted in 1999, and in recent years, under Gov. Quinn, was heavily aimed at large employers including Illinois-based car manufacturers: Mitsubishi and Ford Motor Co.’s plant on Chicago’s far South Side.

Since 2011, the state has provided Mitsubishi about $7.2 million in tax credits and hundreds of thousands of dollars in workforce training funds.

The government’s willingness to provide tax breaks angers Rep. Jack Franks (D-Marengo), who argues that some major employers in his district got incentives but some ultimately retrenched and cut jobs.

Rep. Franks contends that lowering the corporate tax rate, getting rid of unnecessary industry regulations and providing educational opportunities for students to prepare them for careers in in-demand fields, including manufacturing, are better approaches than multi-million-dollar state tax credits.

Gov. Rauner is no fan of EDGE either and has put the program on hold. His commerce secretary recently told the Chicago Tribune that he views incentive programs, which often pit states against each other to lure or keep corporations, as a "race to the bottom".

Marketing the plant

The Rauner Administration contends passing the governor’s "Turnaround Agenda" is the most productive way of attracting and retaining business while also laying the groundwork for expanding the state economy.

That agenda includes overhauling state workers’ compensation laws, chipping away at prevailing wage and collective bargaining, and initiating other measures considered by Rauner to be pro-business.

Rauner wants major elements of his turnaround agenda linked to the passage of a state budget, which is months overdue.

The governor’s approach is sparking robust opposition from Democratic Party leadership in the General Assembly, led by House Speaker Michael J. Madigan and Senate President John Cullerton, and their supporters in organized labor, which sees the agenda as vehemently anti-union.

The governor’s office declined to comment on this story.

Without some government sweeteners it is doubtful the Mitsubishi plant will soon be scooped up by another automaker or related industry, experts say.

A 2011 report examining the closure and repurposing of automotive facilities by the Center for Automotive Research points out that a combination of federal, state and local inducements are needed to jump-start the reopening of a plant, especially one as big as Mitsubishi’s.

Even then, it’s a tough sell. Of the 267 automotive facilities that have closed since 1979, only 128 have been resurrected for some other use, according to the Center, which authored the report for the U.S. Dept. of Labor.

That usually means: New or reworked zoning requirements; environmental and tax regulation breaks; or passing other laws that are tailor-made to attract potential suitors.

"Rezoning, building demolition, slab removal, environmental remediation and purchase price negotiation are all significant barriers that must be overcome before a property can be reused," the report states. " Federal funding programs from various departments assisted with some of the repurposed sites, and often allowed communities to leverage local programs such as tax abatements."

Other development possibilities loom.

Over the years, communities have reconstituted auto plants into office parks, shopping malls and so-called mixed-use facilities that offer a combination of commercial and retail outlets. A municipality may even take ownership of the site and work to redevelop it with private firms.

While such endeavors can pump some economic life back into the area, chances are the employee wages and benefits generated by these new ventures won’t match the previous automaker’s levels.

"While property value was successfully restored, present employment levels do not match those the former facilities provided," said the Center for Automotive Research.

Personal impact

Residents of Normal and downstate Illinois, however, may not have the luxury of waiting for a new owner or tenant. Many workers already have begun looking for other jobs or figuring out their next move.

"(They) are in denial or shock," Timan said. "They don’t know what to do."

Timan worked at the plant from 1989 to 2003 and has been back on the factory floor for the past three years following his stint at the local’s president. At age 52, he has enrolled in college courses and recently completed an exam for employment with the U.S. Postal Service.

The workforce at the plant is predominantly older, which will make it harder for them to find new jobs, he said.

Kyle Young, 55, Local 2488 vice president resides in East Peoria and has worked at the plant for 27 years installing mufflers and struts, among of host of other jobs.

"Some people have put their whole lives in over there," Young said as he sat at a desk in the local’s office in a rural area of Bloomington, just a few miles from the Mitsubishi plant. "It’s heart-breaking."

Author(s)

Bob Reed has more than 30 years of professional journalism and communications experience. Before joining the BGA in September 2010, he served as communications director and senior adviser to Illinois Governor Pat Quinn.